UNITED STATES - IMPORT MEASURES ON CERTAIN PRODUCTS 
FROM THE EUROPEAN COMMUNITIES


AB-2000-9


Report of the Appellate Body

 (Continuation)

VI. The Mandate of Arbitrators Appointed Under Article 22.6 of the DSU

83. In paragraphs 6.121 to 6.126 of the Panel Report, the Panel stated, inter alia:

… We consider that the arbitration process pursuant to Article 22 may constitute a proper WTO dispute settlement procedure to perform the WTO assessment mandated by the first sentence of Article 21.5 of the DSU. … [Article 22.7 of the DSU] gives the arbitration panel the mandate and the authority to assess the WTO compatibility of the implementing measure. Since the Article 22.6 arbitration was given the authority to determine "a level of suspension equivalent to the level of nullification", it has the authority to assess both variables of the equation.⁵⁴ 

… Since the Article 22.6 arbitration process was given the authority to determine "a level of suspension equivalent to the level of nullification", it has the authority to assess both variables of the equation, including whether the implementing measure nullifies any benefit and the level of such nullified benefits.⁵⁵ 
. . .
… we consider that the WTO compatibility determination mandated by the first sentence of Article 21.5 can be performed by the original panel or other individuals through the Article 22.6-7 arbitration process.⁵⁶ … 

84. The European Communities appeals these statements of the Panel. According to the European Communities, the WTO-consistency of a measure taken by a Member to comply with recommendations and rulings of the DSB cannot be determined by arbitrators appointed under Article 22.6 of the DSU.

85. In our view, the question that arises with respect to the Panel's statements on the mandate of Article 22.6 arbitrators is the following: was the issue of the mandate of arbitrators appointed under Article 22.6 of the DSU in any way pertinent to the Panel's determination of the claims relating to the measure at issue in this dispute?

86. The sequence of events that provides the background to this dispute is relevant to resolving this issue. On 2 February 1999, in the dispute in European Communities - Bananas, the United States requested authorization from the DSB to suspend the application of concessions or other obligations with respect to the European Communities pursuant to Article 22.2 of the DSU. On the same day, the European Communities requested, pursuant to Article 22.6 of the DSU, arbitration on the level of suspension of concessions or other obligations proposed by the United States. The arbitrators were unable to issue their decision on 2 March 1999, which was the deadline for the circulation of their decision, in accordance with the 60-day time-frame provided for in Article 22.6 of the DSU. On the following day, the United States took the 3 March Measure "as a retaliation measure", with the aim of redressing "a perceived WTO violation by the European Communities"⁵⁷. The arbitrators circulated their decision on 9 April 1999. On 19 April 1999, the United States requested, and received, authorization from the DSB to suspend the application of concessions or other obligations in the amount determined by the arbitrators. Subsequent to this authorization, the United States took the 19 April action.

87. This sequence of events is not contested by the parties. In particular, it is not contested that the United States took the 3 March Measure before the Article 22.6 arbitrators had issued their decision. Thus, the issue of whether it is within the mandate of arbitrators appointed under Article 22.6 to determine the WTO-consistency of implementing measures was not, and could not have been, relevant to the Panel's determination of the claims relating to the 3 March Measure. This issue could only be relevant with respect to claims relating to the 19 April action, a measure taken after the decision of the Article 22.6 arbitrators and the subsequent authorization of the DSB based on that decision.

88. However, as we have already concluded, the Panel correctly found that the measure at issue in this dispute is the 3 March Measure and that the 19 April action is not within the terms of reference of the Panel.

89. Having found that the 3 March Measure is the measure at issue in this dispute, and that the 19 April action is outside its terms of reference, the Panel should have limited its reasoning to issues that were relevant and pertinent to the 3 March Measure. By making statements on an issue that is only relevant to the 19 April action, the Panel failed to follow the logic of, and thus acted inconsistently with, its own finding on the measure at issue in this dispute. The Panel, therefore, erroneously made statements that relate to a measure which it had itself previously determined to be outside its terms of reference.

90. For these reasons, we conclude that the Panel erred by making the statements in paragraphs 6.121 to 6.126 of the Panel Report on the mandate of arbitrators appointed under Article 22.6 of the DSU. Therefore, these statements by the Panel have no legal effect.

91. In coming to this conclusion, we are cognizant of the important systemic issue of the relationship between Articles 21.5 and 22 of the DSU. As the United States correctly points out in its appellee's submission, the terms of Articles 21.5 and 22 are not a "model of clarity" and the relationship between these two provisions of the DSU has been the subject of intensive and extensive discussion among Members of the WTO.⁵⁸ We note that, on 10 October 2000, eleven Members of the WTO presented a proposal in the General Council to amend, inter alia, Articles 21 and 22 of the DSU.⁵⁹ 

92. In so noting, we observe that it is certainly not the task of either panels or the Appellate Body to amend the DSU or to adopt interpretations within the meaning of Article IX:2 of the WTO Agreement. Only WTO Members have the authority to amend the DSU or to adopt such interpretations. Pursuant to Article 3.2 of the DSU, the task of panels and the Appellate Body in the dispute settlement system of the WTO is "to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law." (emphasis added) Determining what the rules and procedures of the DSU ought to be is not our responsibility nor the responsibility of panels; it is clearly the responsibility solely of the Members of the WTO.

VII. The Effect of DSB Authorization to Suspend Concessions or Other Obligations

93. The European Communities appeals the following statement of the Panel:

Once a Member imposes DSB authorised suspensions of concessions or obligations, that Member's measure is WTO compatible (it was explicitly authorised by the DSB).⁶⁰ 

94. The European Communities argues that this statement is incorrect and should be reversed. According to the European Communities, DSB authorization to suspend concessions or other obligations does not have the automatic and unrebuttable effect of rendering a measure suspending the application of concessions or other obligations WTO-consistent. The European Communities argues that DSB authorization is a necessary, but not a sufficient, condition in order to implement legally a suspension of concessions or other obligations. 

95. We note that the claims before the Panel, as they related to the 3 March Measure, were that the United States had suspended the application of concessions or other obligations without DSB authorization. Thus, the issue before the Panel was that of the absence of DSB authorization. 

96. The statement of the Panel relates to the effect of DSB authorization, once granted. In the context of this dispute, the issue of the effect of DSB authorization, once granted, could only arise with respect to the 19 April action, which is a measure taken to suspend concessions after the United States had received DSB authorization. However, as we have already established, the Panel correctly found that the measure at issue in this dispute is the 3 March Measure, and that the 19 April action is not within its terms of reference. Having found that the 3 March Measure is the measure at issue in this dispute, and that the 19 April action is outside its terms of reference, the Panel should have limited itself to issues that were relevant and pertinent to the 3 March Measure. By making a statement on an issue that is only relevant to the 19 April action, the Panel acted inconsistently with its own finding on the measure at issue in this dispute. The Panel erroneously made a statement that relates to a measure which it had itself previously determined to be outside its terms of reference.

97. For these reasons, we consider that the Panel erred by stating that "[o]nce a Member imposes DSB authorised suspensions of concessions or obligations, that Member's measure is WTO compatible (it was explicitly authorised by the DSB)"⁶¹. Therefore, this statement by the Panel has no legal effect.

VIII. Articles II:1(a) and II:1(b), first sentence, of the GATT 1994

98. The Panel found that:

… the increased bonding requirements of the 3 March Measure, as they provided a treatment less favourable than in the United States' Schedules, violated Article II:1(a) of GATT. The 3 March Measure also violated Article II:1(b), first sentence, as it was guaranteeing and, therefore, enforcing tariffs above their bound levels.⁶² 

99. The Panel also found that:

… any additional interest, charges and costs incurred in connection with the lodging of the additional bonding requirements of the 3 March Measure violated Article II:1(b) of GATT.⁶³ 

100. The United States does not appeal the Panel's finding of inconsistency with Article II:1(b), second sentence, of the GATT 1994. During the oral hearing in this appeal, the United States conceded that it follows from this finding of the Panel that the increased bonding requirements are inconsistent with Article II:1 (b), second sentence. We agree. 

101. The United States appeals only the Panel's findings that the increased bonding requirements of the 3 March Measure were inconsistent with Article II:1(a) and the first sentence of Article II:1(b) of the GATT 1994. In support of its appeal, the United States submits that: 

[t]he Panel … made its finding[s] based not on the conclusion that the bonding requirements themselves breached the obligations in question, but because the duties they might be called upon to enforce (if imposed) would breach those obligations.⁶⁴ 

102. The Panel's findings on the inconsistency of the increased bonding requirements with Article II:1(a) and the first sentence of Article II:1(b) are based on the reasoning that the increased bonding requirements were linked to the collection of 100 per cent duties, insofar as the increased bonding requirements were imposed at a level that would guarantee the collection of these duties. Thus, the Panel reasoned that:

The 3 March additional bonding requirements were established at a level which would guarantee the collection of 100 per cent duties. We have found that the bonding requirements should be assessed together with the rights/obligations they purport to protect, being in this case, the right to collect tariffs at bound levels. The 3 March Measure imposed additional bonding requirements to guarantee collection of 100 per cent tariff duty. The 3 March additional bonding requirements increased the contingent tariff liability for EC listed products above their bound levels, all of which are much lower than 100 per cent ad valorem (the highest is 18 per cent). In fact, on 3 March, with the additional bonding requirements on EC listed imports, the United States began 'enforcing' the imposition of 100 per cent tariff duties on the EC listed imports, contrary to the levels bound in its Schedule.⁶⁵ 

The Panel, thus, found that the increased bonding requirements of the 3 March Measure are inconsistent with Article II:1(a) and also with the first sentence of Article II:1(b) of the GATT 1994 because the 100 per cent duties to which they were linked, would, if imposed, be duties above bound levels, and thus, inconsistent with these provisions. 

103. We have previously upheld the findings of the Panel that the measure at issue in this dispute is the increased bonding requirements imposed by the 3 March Measure and that the 19 April action, which imposes 100 per cent duties, is not within the terms of reference of the Panel.⁶⁶ The task of the Panel, as the Panel had itself defined it in its finding on the terms of reference, was, therefore, to examine the GATT 1994-consistency of the increased bonding requirements; the Panel's task was not to examine the GATT 1994-consistency of the imposition of 100 per cent duties.

104. Nevertheless, the Panel examined the GATT 1994-consistency of the increased bonding requirements in the light of the GATT 1994-consistency of the imposition of 100 per cent duties, and concluded, on the basis of this examination, that the increased bonding requirements are inconsistent with Articles II:1(a) and II:1(b), first sentence, of the GATT 1994. As the Panel had previously concluded that the imposition of 100 per cent duties and the increased bonding requirements were legally distinct measures, and that the imposition of 100 per cent duties was not in the Panel's terms of reference, the Panel could not, based on this reasoning, have come to the conclusion that the increased bonding requirements are inconsistent with Articles II:1(a) and II:1(b), first sentence, of the GATT 1994.

105. We, therefore, conclude that the Panel erred in finding that the increased bonding requirements are inconsistent with Article II:1(a) and Article II:1(b), first sentence, of the GATT 1994, and we reverse these findings of the Panel.

54. Ibid., para. 6.121.

55. Ibid., para. 6.122.

56. Ibid., para. 6.126.

57. Panel Report, paras. 6.33-6.34

58. United States' appellee's submission, para. 39 and footnote 85.

59. WT/GC/W/410.

60. Panel Report, para. 6.112.

61. Panel Report, para. 6.112.

62. Panel Report, para. 6.59. See also Panel Report, para. 6.72. We note that one panelist disagreed with this majority view, see Panel Report, paras. 6.60-6.61.

63. Panel Report, para. 6.67. See also Panel Report, para. 6.72.

64. United States' appellant's submission, para. 5.

65. Panel Report, para. 6.58.

66. See supra, para. 82.